NAB walks while IAG talks: National Australia Bank's decision to ditch its plans to buy the local arm of Dutch investment bank ABN AMRO has been described as disappointing. Meanwhile, Insurance Australia Group's chief executive Michael Wilkins speaks to Australian Banking & Finance Magazine about his mission to get the organisation back on track

Australian Banking & Finance, July 30, 2008 by Andre Khoury

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Experts believe National Australia Bank's decision to walk away from ABN AMRO Australia doesn't necessarily mean its efforts to acquire an investment bank is over and that it may be exploring other options in the marketplace.

While describing the decision as disappointing, chief analyst for Wealth Within, Dale Gillham, said, "They may have other things in mind".

"There maybe other brokerage firms they may want to buy instead," he said.

"They may have felt 'hang on they want too much for this so let's look at other opportunities'.

"At the moment all the broking houses are suffering big time. Because of this market downturn there's not a lot of trading going on and in the first half of the year volumes have dropped.

"So they maybe thinking what else is out there that they can actually buy at probably a cheaper price and still get an outcome.

"I would have thought getting into ABN AMRO would have been great because it gives them a bit more global exposure.

"But maybe there's somebody else as just as good or fitting in with their business plan that's actually going to represent a much better alignment with their goals and where they are heading."

At the time NAB said it was looking at acquiring ABN AMRO the bank stressed that there was no certainty that a deal would be sealed.

"Any potential transaction would be subject to due diligence and, ultimately, the receipt of all relevant regulatory approvals," it said.

In a short statement to the stock exchange at the time of going to press, NAB said it had withdrawn from the auction. Shortly after, Commonwealth Bank said it was in talks to acquire ABN AMRO's Australian and New Zealand operations.

NAB bank gave no reason for its latest decision.

"I thought it would have been a great strategic move," Gillham said.

"They really do need that market exposure with a broking house because basically the share market or the equity market and the cash market are interlinked ... when you are getting clients from a broking house you can also feed them into your wealth management side of your business and therefore grow your business."

The move will please other analysts, though, with some not as optimistic about NAB's proposed acquisition plans.

"I'm not convinced that commercial banks should be buying investment banks," Brett Le Mesurier, a banking analyst at Wilson HTM, said at the time the talks between NAB and ABN AMRO were revealed.

"They're very different types of businesses."

Despite NAB's decision, Gillham said he believed consolidation within the banking sector would continue.

"We are going to see a lot more of it," he said.

"Over the next year we'll start seeing a few more announcements from the smaller banks or some takeovers by the big banks to consolidate their positions because they do need to get bigger to become world competitive.

"I think the banks are still a little bit too small to compete on a world scale.

"And probably the time's right for them to make strategic moves and move out there because obviously the big American banks are struggling."

Getting back on track

Meanwhile, after just seven months in the job Insurance Australia Group chief executive Michael Wilkins has charted the course for the insurance giant's comeback.

Last week he announced the findings of a long-awaited review into the business.

It involves a restructure of its Australian and New Zealand business and a retreat from the UK to deliver $130 million in annual savings.

The exit from the UK means the group will book a non-cash impairment charge of around $350 million in fiscal 2008.

Wilkins conceded to Australian Banking & Finance Magazine that the last few weeks and months have been a "tough period" for the organisation.

"I think you always have to think about the organisation in what you're doing and I've always believed you need to act in the best interests of the organisation at all times," he said. "We are now looking to the future and I certainly think that IAG has got a bright future. The changes we have announced are sensible things for the business."

Asked about the muted response by investors to the plans [IAG's shares closed slightly lower on the day of the announcement], Wilkins said: "Given the amount of change announced as part of the briefing we believe the fact the share price remained steady is a vote of confidence in our plan."

He added: "What we've announced is all around a revision of our strategy and our intent as a business and, importantly, a method of remediating our underperformance.

"It will actually deliver some short term financial pain but I believe it sets us up and gives us a great platform for the future for this organisation."

Media and analysts' response to the review's findings was generally positive, however criticism arose of the plans, with some commentators describing it as "pie in the sky" and fairly predictable.

Wilkins dismissed the criticism.

"The changes to our strategy and operating model are particularly important because they give us the platform for future growth and development," he said. "It's about refining the strategy we have as an organisation, and saying that we are not looking to be driven by top line growth, but rather prefer to concentrate on margin and underlying profitability.